We expect Carlsberg to deliver subdued 1Q15 results due to a short period of sales disruption in Malaysia prior to the implementation of the GST, although we expect a resumption in its sales volume thereafter in 2Q15. We downgrade to NEUTRAL (from Buy) with a revised TP of MYR14.10 (1.7% downside), as we believe most upsides have been priced in. Dividend yields for FY15F-FY17F remain decent at 5-6%.

• Expect a subdued 1Q15. We expect 1Q15 results to be subdued due to a short period of sales disruption in Malaysia prior to the implementation of the goods and services tax (GST). However, we expect a resumption in its sales volume thereafter in 2Q15. Additionally, we believe there is still room for margin improvement on costs efficiencies as well.
• Outlook.Despite potential tightening of purse strings by consumers due to the implementation of the GST, we expect malt liquor market (MLM) volume to be flat instead of posting a large decline, given that there is no price increase YTD and demand for malt liquor is relatively inelastic.(The last price hike in Dec 2014 was low-mid single-digit percentage). Meanwhile, we understand from management that the recent Liquor Control (Supply and Consumption) Act which prohibits consumption of liquor in public places from 10.30pm till 7am daily will impact its Singapore operation; albeit minimally.
• Forecasts and key risks. We trim our FY15F-17F earnings forecasts by 3-3.4% after updating our sales assumptions to capture the volume loss in 1Q15 and potential short-term weakness in consumption in its Singapore operation. Key risks to our earnings forecasts include: i) weaker-than-expected sales volume, ii) an excise duty hike, and iii) potential payment of the MYR56.1m bills of demand (25.2% of FY15F earnings).
• Downgrade to NEUTRAL with a revised TP of MYR14.10.Although we like Carlsberg for its defensive attributes, we downgrade the stock to NEUTRAL (from Buy) with a revised DDM-derived TP of MYR14.10(from MYR14.20) as we believe most of the upsides have been priced in. Valuations are not especially compelling with the stock currently trading at FY15F P/E of 19.9x, although we note that its dividend yields for FY15F-FY17F remain decent at 5-6%.